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VAT Problem for House Builders
Newsletter issue - November 08.
In the present climate where house builders are stuck with properties they can't sell, they may be tempted to rent them out.
However, when building firms rent out newly built homes instead of selling them, this can cause VAT problems. This is because new residential properties are zero rated for VAT and letting residential property is exempt from VAT. The amount of VAT charged to the buyer in both cases is the same: nil, but the seller's ability to reclaim VAT on its costs is not. Briefly you can reclaim VAT on costs associated with something you sell which carries zero-rate VAT, but you can't reclaim the VAT when the thing you sell is exempt from VAT.
Where your business has only a small proportion of VAT exempt sales, you may be able to ignore the ban on reclaiming VAT, if the VAT relating to the exempt sales is less than both:
- £7,500 per year; and
- 50% of the business's VAT on purchases for the year
Working out how much of the VAT you paid relates to the new properties which are let is not straight-forward. The total amount of VAT on the purchases that relate to those buildings must be spread over 10 years. If the properties are let for say 2 years before they are sold then 2/10ths of the VAT on the costs is regarded as relating to exempt sales. If this total is within the limits shown above, you have no VAT problem.
However, in real life the calculations are rarely that simple. If you are forced to let newly-built residential property please ask us to check your VAT position.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
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